https://www.aei.org/publication/when-trump-onomics-comes-into-contact-with-the-real-world/When Trump-onomics comes into contact with the real worldJames Pethokoukis
April 7, 2016
Life is complicated. There are trade-offs. And unintended consequences — good, bad, neutral.
Example: Take Donald Trump’s idea of banning remittances unless Mexico pays for his proposed border wall. From a NY Times op-ed:
There are a number of logistical problems with this plan, including political realities, legality and the feasibility of stemming the flow of these informal payments. But even assuming this policy was possible, the economic implications would be felt as much in the United States as in Mexico.
While my research suggests that Mexican immigrants in the United States may initially have more disposable income if they could not send money, their families back home would be less likely to invest in education, start businesses and get out of poverty. This could damage Mexico’s economy: Mexico receives $24.4 billion in remittances from immigrants in the United States, which accounts for about 2 percent of Mexico’s gross domestic product. Indeed, withholding this money may actually encourage immigration to the United States.
Banning remittances could also reduce incentives for the best and brightest immigrants to come to the United States. Without the opportunity to provide for their family and friends back home, many talented immigrants might choose to move elsewhere. Or migrants may choose instead to bring their families with them to the United States, undermining the objectives of Mr. Trump’s proposal and straining social services.
And what about a Trump tariff on Chinese goods coming to America?
From another NY Times piece:
Shrinking sales of Chinese products would generally hurt American businesses and workers. A product labeled “Made in China” is not necessarily 100 percent Chinese, since many goods are assembled in China with parts from the United States and elsewhere. Sluggish purchases of these so-called Chinese products would reduce the sales of their American components, too.
For this reason and others, quite a lot of the money spent on Chinese goods actually ends up in the wallets of Americans. A study by the Federal ReserveBank of San Francisco figured that 55 cents of every $1 spent by an American shopper on a “Made in China” product goes to the Americans selling, transporting and marketing that product. Suppressing Chinese imports would harm shopkeepers and truck drivers. …
It seems likely that such a tariff would burden American consumers while doing little to create jobs for them. Gary Clyde Hufbauer and Sean Lowry at the Peterson Institute for International Economics, studying the impact of a 35 percent tariff imposed on Chinese tire imports by Washington in 2009, found that American consumers had to spend an extra $1.1 billion on tires, while the tariff protected no more than 1,200 jobs. About $900,000 for every job saved, in other words.
One other thing: The China piece, written by Beijing-based journalist Michael Schuman, notes that higher costs from a tariff might prompt firms merely to move jobs to lower-cost Asian nations — not back to America: “Foxconn, the Taiwan-based company that assembles iPhones in China for Apple, announced last year that it would build as many as 12 new factories in India. That means your next smartphone or pair or bluejeans would more likely be made in Mumbai than in Minneapolis.”
Hey, just slap tariffs on India, too, I guess.
